The State of California and many Counties and Cities have passed laws and ordinances that create a path to legitimacy for commercial cannabis businesses. With a legal framework in place and permits and licenses underway or issued, compliance is mandatory in the new marketplace. Compliance inspections and code enforcement actions at both the local and state level are the next phase in the “rollout” of the legal cannabis market.

Commercial Cannabis – Regulatory Oversight

Regulations in the new marketplace are significant, layered, and nuanced for all sectors of the industry. Authorizing the right to inspect is a component of the local permit and state licensing process for all commercial cannabis activities. Regulations span a wide range and include but are not limited to: ‘seed to sale’ track-and-trace compliance; environmental regulations; pesticide use and application; distribution requirements including batch testing, shipping manifests, record keeping, and vehicular compliance; security system compliance; tax reporting and data retention; manufacture, food safety, and packaging and labeling requirements; retail sales, display and advertising compliance; labor laws, and more.

A myriad of agencies are tasked with regulatory oversight, and while some States have provisions that require businesses be notified before an inspection, no notice is required in California. At the local level inspections may include building, agricultural, health and safety, tax, and emergency services. At the State level inspections can include the Cannabis Licensing Agencies – Cal-Cannabis Cultivation Licensing, the Bureau of Cannabis Control, and the California Department of Public Health – along with the State Water Board, California Department of Fish and Wildlife, CalFire, and the California Department of Taxes and Fee Administration among others.

Inspectors and code enforcement officers from each of the responsible agencies are tasked with investigating and resolving code violations related to local permits and State licenses, or the lack there of. At the State level, track-and-trace training is incorporated into the issuance of annual licenses. This basic training will help cannabis business operators understand compliance through the lifecycle of cannabis products. A variety of apps and programs are available that automate inventory tracking, taxes, and reporting to assist businesses with track-and-trace compliance.

Commercial Cannabis – Cultivation

In the new marketplace cannabis cultivation is heavily regulated. While there is variation in land-use regulations based upon your local jurisdiction, the following requirements are universal: operators are subject to criminal background searches; operators and employees must be at least 21 years of age; operations must comply with occupational safety requirements (Cal/OSHA, wage and hour laws, etc.); track-and-trace reporting is required; pesticide use and regulations are enforced; and, annual agricultural inspections are required. CalCannabis Cultivation Licensing (California Department of Food and Agriculture) will conduct inspections, investigations and audits of licensees including, but not limited to, a review of any books, records, accounts, inventory, or onsite operations specific to the license.

Commercial Cannabis – Complaints and Inspections

Complaint registration varies by jurisdiction; however complaints can generally be logged on-line, via telephone or “hotline”, submitted my mail, or registered in person. Moreover, many local ordinances include language that allows staff to identify cultivation operations and potential violations via satellite imagery or aerial photography without ever receiving complaints. It’s a simple before-and-after photographic process. If a cultivation site or associated structure is found on a property that is not permitted, a notice is sent to the property owner. In some jurisdictions and during this transition period where the goal is to encourage compliance, these notices are sent as a “courtesy” to begin a discussion about the situation and to schedule an appointment for an inspection. In some jurisdictions, complete removal of the violation – cannabis cultivation and related structures – prior to an inspection may result in dismissal of the violation and closure of the case.

When code enforcement inspections are performed, inspectors are generally focused on the nature of the complaint or suspected violation. However, inspectors will not overlook health and safety code violations if they are observed such as sewage, environmental damage, unpermitted electrical work, and other concerns at the discretion of the inspector.

Commercial Cannabis – Violations and Penalties – Criminal or Civil?

With State Regulations and Local Ordinances in place, criminal liabilities are replaced by administrative remedies (fines and penalties) along with civil enforcement and abatement measures. Any activity performed contrary to the provisions of the Local Ordinance or State Regulations may be deemed to be a violation. Similarly, any violation of a term, condition, or the approved plans and specifications of any permit issued by the local jurisdiction or license issued by the State may constitute a violation. Local Ordinances generally provide that each and every day during any portion of which any violation is committed, continued, or allowed to continue shall be a separate offense. Thus, fines can accrue for everyday the violation persists.

Cultivation violations may include but are not limited to: the exceedance of the permitted cultivation area; non-compliance with a standard or condition; and an unpermitted cannabis use other than the cultivation area. Administrative fines vary by jurisdiction, but as a “rule of thumb” fees escalate per incidence (1st offence, 2nd offence, 3rd offence), and include a “three strikes” provision which can result in the permit or license for the operation to be nullified, voided or revoked. Further, the Civil Penalties if not satisfied in full or appealed in court within the specified timeframe may be enforced as a lien against the real property on which the violation occurred.

Sample Local Fines:

Exceedance of allowed or permitted cultivation area – up to $20 per square foot

Non-compliance with a standard or condition – up to $1,000 per day.

Unpermitted cannabis use – up to $10,000 per day.

Unpermitted structures – demolition permits and discretionary fines may apply to structures that are not eligible for permits. Structures that are eligible for permits be assessed for fees up to 50 times the amount of the standard fee for every required approval, review and permit.

Sample State Fines – Cultivation

State violation classes are designated as Minor, Moderate, and Serious with the following fine range:

Minor – Violations that are not likely to have an adverse effect on public safety or environmental health. Fine Range $100 -$500

Moderate – Violations that undermine enforcement, are likely to cause public or environmental harm, or are a repeat of a Minor violation that occurred within a two-year period and resulted in an administrative civil penalty. Fine Range $501 – $1,000

Serious – Violations which preclude or significantly interfere with enforcement, or those that cause significant false, misleading or deceptive business practices, potential for significant level of public or environmental harm, or for any violation that is a repeat of a Moderate violation that occurred within a two-year period and that resulted in an administrative civil penalty. All serious violations are subject to revocation. Fine Range $1,001 – $5,000.

Person(s) engaging in commercial cannabis activity without a license shall be subject civil penalties of up to three (3) times the amount of the license fee for each violation.

If a licensee, or an agent or employee of the licensee, fails to maintain or provide required records, the licensee shall be subject to a citation and a fine of up to thirty thousand dollars ($30,000) per individual violation.

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